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May 28, 2012 02:00 AM

China's economic growth accelerating car demand

Rhoda Miel
Managing Editor
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    To understand the rate of economic growth China is experiencing, John Zeng looks to the United States' past.

    Between 1880 and 1970, the U.S. went through an economic surge, from the days of the pioneers to urbanization to a complete modernization that spread from large cities to small rural towns of the Midwest.

    China today sits at the same tipping point as the U.S. in 1900 — with half of its population in cities, with access to everything modern life offers, and half in rural areas, said Zeng, director of Asia-Pacific forecasting for analyst group LMC Automotive Ltd. The U.S. took the next six decades to modernize everywhere.

    “China, within 20 years, will do what it took the U.S. 60 years to do,” he said during Plastics News' China Plastics in Automotive conference, held April 17 in Shanghai.

    China produced more than 18 million cars in 2011, and while demand cooled at the start of 2012, forecasters still expect the country's auto market to hit 30 million cars by the end of this decade.

    That supercharged growth will continue feeding the demand for new car production in China, but governments there will also struggle to control traffic congestion and rising demand for energy.

    Those realities will force the auto industry to embrace new technologies as it creates the future car for China, with turbochargers to get more miles out of gas-powered engines, and engines that run on alternate fuels.

    Each vehicle will require lighter materials to meet expectations from the government and consumers to get more performance out of engines, but also must embrace design and ergonomic cues that consumers want.

    A young buyer selecting a first car in China is not the same as a young person in California looking to differentiate his tastes from those of his parents, noted Klaus Paur, the Shanghai-based global head of automotive for consulting group Ipsos SA of Paris.

    “The young consumers' buying behaviors are a blend of traditional values and new,” he said. “They want the acceptance of their family and friends. They want to fit into their social group.”

    There are some key design cues that automakers and suppliers are recognizing, Paur said. Chinese consumers are drawn more to large headlights and a large, chrome-plated front grille. Likewise, chrome and metallic-highlighted interior trim is preferred over wood trim, which is considered “stodgy.”

    The typical consumer will consider four or five brands, said Jim Press, president of international operations for car dealership group McLarty Automotive Partners of Little Rock, Ark.

    More than 80 percent of car buyers in China are buying their first car, Zeng said, compared with 12 percent of car buyers in Germany and 10 percent in Japan.

    The central government will require 25 percent of vehicles sold by 2018 to be electric. It is promoting the use of methanol as an alternative fuel, with trial developments in three cities now.

    There are 627 cities in China classified as Tier 2 or Tier 3 — with populations ranging from 500,000 to 2 million, Press said. Many of those cities do not even have an auto dealership yet, but have consumers already anxious to buy their first car.

    China's auto industry is just beginning its long growth in those cities, with 8 percent growth this year, said Shi Jianhua, vice secretary general of the China Association of Automobile Manufacturers in Beijing.

    “And then there are the Tier 4 and Tier 5 cities,” said Jack Cheng, general manager of GAC Fiat Automobiles Co. Ltd., which is building a new plant in Changsha to make Fiat cars. “Those guys are hungry.”

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